A farmer is considering to plant A or B for the next year. If there is not a frost next year, he will get $5000 return for planting A, and get $3000 return for planting B. If there is a frost next year, he will get $500 return for planting A, and get $2000 return for planting B. According to the historic frost data, there are 15 frosts in the last 50 years. Suppose that the farmer is risk neutral. 1: What will the farmer plant if he does not buy the frost forecast? 2: If the accuracy of frost forecast is only 0.9, what is the maximum amount that the farmer will pay for the frost forecast? 3: What is the EVPI?

A farmer is considering to plant A or B for the next year. If there is not a frost next year, he will get $5000 return for planting A, and get $3000 return for planting B. If there is a frost next year, he will get $500 return for planting A, and get $2000 return for planting B. According to the historic frost data, there are 15 frosts in the last 50 years. Suppose that the farmer is risk neutral. 1: What will the farmer plant if he does not buy the frost forecast? 2: If the accuracy of frost forecast is only 0.9, what is the maximum amount that the farmer will pay for the frost forecast? 3: What is the EVPI?

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter11: Simulation Models

Section: Chapter Questions

Problem 45P: You now have 10,000, all of which is invested in a sports team. Each year there is a 60% chance that...

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You now have 10,000, all of which is invested in a sports team. Each year there is a 60% chance that the value of the team will increase by 60% and a 40% chance that the value of the team will decrease by 60%. Estimate the mean and median value of your investment after 50 years. Explain the large difference between the estimated mean and median.
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Problem 1) The Nitro Fertilizer Company is developing a new fertilizer. If Nitro markets the product and it is successful, then the company will earn a $50,000 profit; if it is unsuccessful, the company will lose $50,000. In that past, similar products have been successful 55% of the time. At a cost of $10,000, the effectiveness of the new fertilizer can be tested. If the test result is favorable, there is an 80% chance that the fertilizer will be successful. If the test result is unfavorable, there is only a 30% chance that the fertilizer will be successful. There is a 60% chance of a favorable test result and a 40% chance of an unfavorable test result. a) Construct a decision tree to determine Nitro's optimal strategy b) Find the EVSI and EVPI Note I need solution of part A only
Problem 1) The Nitro Fertilizer Company is developing a new fertilizer. If Nitro markets the product and it is successful, then the company will earn a $50,000 profit; if it is unsuccessful, the company will lose $50,000. In that past, similar products have been successful 55% of the time. At a cost of $10,000, the effectiveness of the new fertilizer can be tested. If the test result is favorable, there is an 80% chance that the fertilizer will be successful. If the test result is unfavorable, there is only a 30% chance that the fertilizer will be successful. There is a 60% chance of a favorable test result and a 40% chance of an unfavorable test result. a) Construct a decision tree to determine Nitro's optimal strategy b) Find the EVSI and EVPI I need solution of part (b) only
A farmer must decide whether to take protective action to limit damage to his grapefruit crop in the event that the overnight temperature falls to a level well below freezing. If the temperature drops too low he runs the risk of losing his entire crop, valued at $75,000. Based on the National Weather Service, the probability of such a temperature drop is 60%. He can insulate his crop by spraying water on all the trees, which will cost $20,000. This action might succeed in protecting the crop, with the following possible outcomes: Probability Damage 0.30 $0 0.15 $5,000 0.10 $10,000 0.15 $15,000 0.30 $20,000 a. Construct a decision tree to help the farmer make his decision. What should he do? b. Find the highest cost of insulating the grapefruits for which the farmer prefers to insulate his crop. c. Suppose the farmer is uncertain about the reliability of the National Weather Service forecast. If he thinks the probability of a freeze occurring…
A farmer must decide whether to take protective action to limit damage to his grapefruit crop in the event that the overnight temperature falls to a level well below freezing. If the temperature drops too low he runs the risk of losing his entire crop, valued at $75,000. Based on the National Weather Service, the probability of such a temperature drop is 60%. He can insulate his crop by spraying water on all the trees, which will cost $20,000. This action might succeed in protecting the crop, with the following possible outcomes: Probability Damage 0.30 $0 0.15 $5,000 0.10 $10,000 0.15 $15,000 0.30 $20,000 Construct a decision tree to help the farmer make his decision. What should he do?
A farmer must decide whether to take protective action to limit damage to his grapefruit crop in the event that the overnight temperature falls to a level well below freezing. If the temperature drops too low he runs the risk of losing his entire crop, valued at $75,000. Based on the National Weather Service, the probability of such a temperature drop is 60%. He can insulate his crop by spraying water on all the trees, which will cost $20,000. This action might succeed in protecting the crop, with the following possible outcomes: Probability Damage 0.30 $0 0.15 $5,000 0.10 $10,000 0.15 $15,000 0.30 $20,000 Construct a decision tree to help the farmer make his decision. What should he do? Explain your answer. Find the highest cost of insulating the grapefruits for which the farmer prefers to insulate his crop. Suppose the farmer is uncertain about the reliability of the National Weather Service forecast. If he thinks the probability of…
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